Low-interest loans are available to students and parents through the Federal Direct Loan Program (FDLP) to help pay for the cost of a student's education after high school. The Health Care and Education Reconciliation Act of 2010 eliminated certain student loan programs that were funded by private lenders but guaranteed by the U.S. Government. The U.S. Department of Education currently oversees the FDLP program as the sole government-backed loan program in the United States; however, a large number of loans have been transferred to an online platform for servicing by a private corporation.
Whether loans are serviced by governmental or private entities, the adoption of online loan origination via the Internet has led to a growing number of problems associated with applicant misrepresentation and identity-based fraud. For example, fraudsters can apply for loans by misrepresenting their identity, by stealing and using identity information from another individual, or by using an identity of a deceased person. The associated costs that are passed-on to taxpayers can be significant. Technically well-informed fraud perpetrators with sophisticated deception schemes are likely to continue targeting student loan programs, particularly if fraud detection and prevention mechanisms are not in place. Significant challenges remain for balancing the threats of identity fraud with efficient loan origination and processing.